Restrict Users from creating folders in SharePoint Online

Administrators can allow or restricting SharePoint Online users from creating folders inside a Document Library for which they have Edit permissions.

Creating folder in a SharePoint document library is one way to group and manage files. You can create folders from your device when syncing or from the command bar on the web. By default, folder creation is enabled in the SharePoint document library whereas in SharePoint list folder creation is disabled. Check below to enable it.

1. Open the library where you want to start adding folders.

2. Select Settings , and then select Library Settings.

   

3. Select Advanced settings.

4. In the Folder section, for Make "New Folder" command available,make sure that the Yes option is selected.

5. Select OK, and navigate back to your library.

Reference: https://support.microsoft.com/en-us/office/create-a-folder-in-a-document-library-3d6a8c11-2490-4d6b-8837-f25649a69c56